Michigan has a state income tax and unemployment tax, and several of its jurisdictions impose a local income tax. Employers operating in Michigan or with employees living in the state need to know their payroll tax obligations to withhold and file taxes correctly.
Here’s a rundown of everything you need to know to register your business and pay payroll taxes in Michigan.
How to Run Michigan Payroll Manually (The Hard Way)
The more complicated way to run Michigan payroll is to do it yourself. This is sometimes the way employers go if they only have a couple of employees.
If that’s the route you decide to take for now, here are the steps you need to follow.
1. Register for State and Local Taxes
Before you can withhold and pay payroll taxes in Michigan, you need to register your business.
All Michigan businesses that withhold payroll taxes need to register at the state level. If your business has employees or offices in Michigan municipalities that impose a local income tax, you’ll also need to register it with those municipalities.
The following Michigan municipalities impose a local income tax:
- Albion
- Battle Creek
- Benton Harbor
- Big Rapids
- Detroit
- East Lansing
- Flint
- Grand Rapids
- Grayling
- Hamtramck
- Highland Park
- Hudson
- Ionia
- Jackson
- Lansing
- Lapeer
- Muskegon
- Muskegon Heights
- Pontiac
- Port Huron
- Portland
- Saginaw
- Springfield
- Walker
Register with the Michigan Treasury Online to enroll your business in Michigan’s tax portal. Your registration will guide you through completing Form 518 to set up your business with the Michigan Department of Treasury.
For each local municipality in which you’re required to withhold and pay payroll taxes, you’ll need to register directly with its tax department. The Michigan Department of Treasury website maintains a list of city income tax forms that you can use to register your business.
Some cities also have online registration and payment portals that you can register with via their websites.
Finally, you’ll also need to register with the Labor and Economic Opportunity division to pay your Michigan unemployment taxes. Michigan uses a portal called Michigan Web Account Management (MiWAM) for employers to file and pay these taxes.
2. Report New Hires
Anyone you hire in Michigan who’s considered a reportable employee needs to be registered as a new hire by your business within 20 days of their hire date.
Register your business with the Michigan New Hires Operation Center to get started.
Then, you’ll need to collect the following forms from new hires to withhold and pay payroll taxes:
- Federal Form I-9: The I-9 form proves that your new hires are eligible to work in the United States and, therefore, eligible for payroll tax withholdings.
- Federal Form W-4: Form W-4 is an employee’s tax withholding certificate that shows how many allowances they have in terms of tax withholding. The more allowances an employee is eligible for, the less they have withheld from their paychecks for federal taxes.
- Michigan Form MI W4: MI W4 is a Michigan-specific form with withholding information similar to what’s included on the federal W-4. However, the information an employee gives here directly affects their state tax withholdings rather than federal.
After collecting all required forms and information, you can report your new hires electronically to the Michigan New Hires Operation Center.
3. Calculate Gross Pay and Payroll Taxes
Once your employees begin working, you’ll need to collect and review time sheets to calculate their gross pay. Using time tracking software is best for this, as it accurately tracks how long your employees work each day.
Multiply your employees’ hours for a pay period by their hourly wage to determine their gross pay. For salaried workers, divide their annual salary by the number of pay periods they have. For example, there are 26 pay periods in a year for biweekly payers.
You’ll use gross pay to calculate payroll taxes.
Michigan’s state tax rate is 4.05%, and local jurisdictions charge between 0.5% and 2.4%. This tax applies to an employee’s total gross pay for the pay period.
The state’s unemployment tax rate for new employers is 2.7% but varies from 0.06% to 10.3% for established employers. The taxable wage base in Michigan is $9,500, meaning employers only need to pay unemployment taxes on the first $9,500 each employee earns in a calendar year.
Here’s an example of how you’d calculate payroll taxes in Michigan for an employee making $100,000 a year with no withholding allowances and getting paid biweekly (26 pay periods):
State income tax:
$100,000 / 26 = $3,846.15
$3,846.15 x 0.0405 = $155.77
$155.77 gets withheld from the employee’s paycheck.
Local income tax:
We’ll use the Grand Rapids income tax of 1.5% for this example.
$3,846.15 x 0.015 = $57.69
$57.69 gets withheld from the employee’s paycheck.
Unemployment tax:
As a new employer, you’ll have an unemployment tax rate of 2.7%.
$3,846.15 x 0.027 = $103.85
This does not get withheld from employee pay.
You are responsible for paying $103.85 toward unemployment tax for this employee on this paycheck if they haven’t yet reached the $9,500 wage base for the year. You’ll only pay unemployment tax on the employee’s first $9,500 in wages for the current year.
4. File and Pay Michigan Payroll Taxes
All Michigan employers required to register for withholding taxes need to file a return on time, even if they don’t owe any tax for that period.
When you register your business for withholding taxes, the state will let you know whether you need to file and pay your taxes monthly or quarterly. All businesses also need to file a reconciliation annually, regardless of whether they file monthly or quarterly.
Monthly filers need to file on or before the 20th of the following month, while quarterly filers must file on or before the 20th of the month following the quarter’s end.
Annual reconciliations are due on February 28th. File and pay all taxes through the Michigan Treasury Online portal you signed up with.
Local taxes are paid directly to the jurisdiction’s tax department and are usually also due monthly or quarterly with an annual reconciliation.
You’ll file reports and pay unemployment taxes in Michigan quarterly, due on April 25th, July 25th, October 25th, and January 25th.
How to Run Michigan Payroll Automatically (The Easy Way)
Without a doubt, the easiest way to run Michigan payroll is to have it done for you by using payroll software. If you’re looking to invest in something that can truly take time off your hands and reduce the risk of errors, payroll software is it.
As a business owner, you want to make sure you’re paying employees properly. You also want to ensure you stay compliant with your tax responsibilities. The best payroll software handles both of these tasks.
What can payroll software do?
- Manage new hire paperwork
- Calculate gross pay
- Automatically update tax rates and deadlines
- Process paychecks
- Track time
- Send reminders about important tax and payroll dates
Essentially, payroll software automates many of the processes you’d be responsible for if you run payroll manually, i.e., the hard way.
That’s why I always suggest to business owners to invest in payroll software early. The best options scale with you, keeping you on track and saving valuable time.
